Tax Management For Everyone

There is no requirement for you to organize your affairs to pay extra income tax. Unfortunately, many people do. You could think of those taxes as being voluntary.

“Voluntary tax” is about as rational as “Leftover wine”

“Leftover Wine?? HELLO!” – Maxine

Some common voluntary taxes.

This applies in Canada, sometimes particularly Ontario, and maybe elsewhere.

  1. Saving for retirement, but not using deferred income plans like RRSP. Saving $5,000 per year after taxes is roughly $9,000 pretax. Both invested at 4% in bonds. After 30 years you can have:
  • Tax paid in open account accumulates to $135,000 and has income of $3,200 per year after taxes. Estate of $135,000.
  • Taxable in RRSP $525,000, with after tax income of $12,600. After tax amount of $250,000 or so in estate.
  • Tax paid accumulation in a Tax Free Savings Account. $290,000 with after tax income of $11,600

Clear message. Use your TFSA and RRSP to the limits possible. Only then consider an open account.

2. Failure to split income when possible. This is not always easy, but still doable. Example. Spouse A has income of $130,000 annually and spouse B has $60,000. Investment income costs A 43% and spouse B 30%. Create taxable investments in B’s hands by having A pay all household expenses and B saves.

3. Improper allocation of RRSP contributions. Like 2. A saves 43%, B just 30%

4. Paying personal tax when a corporation could have paid instead. A pays 43% on the top $30,000 or so. Corporation could have paid 15%. The trick will to be to find some expenses you pay personally now, but corporation could pay instead. Even non-deductibles, like life insurance premiums, debt principle, and club fees if they provide a business advantage.

5. Taking money out of RRSP before retirement to pay personal expenses. You can borrow money from the mafia cheaper.

6. Failure to deduct allowable things. Get a list from an accountant or look at section 8 in the tax act if you are an employee.

7. Take investment losses before the year end, and sell with a profit in January. In both cases, only if you plan to sell anyway.

None of these are hard to accomplish.

Strategic advice

“Over and over again courts have said that there is nothing sinister in so arranging one’s affairs as to keep taxes as low as possible. Everybody does so, rich or poor; and all do right, for nobody owes any public duty to pay more than the law demands: taxes are enforced exactions, not voluntary contributions. To demand more in the name of morals is mere cant.” – Judge Billings Learned Hand

Organize for the minimum.

If ever investigated, I suspect we would find there is more tax being paid voluntarily than there is being evaded by the miscreants.

I help business owners, and professionals understand and manage risk and other financial issues. To help them achieve their goals, I use tax efficiencies and design advantages to acquire more efficient income and larger, more liquid estates.

Please be in touch if I can help you. 705-927-4770

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